Published August 25, 2008

MALAYSIA INSIGHT
Politics trumps economics, again

Parliamentary by-election in Permatang Pauh consigns Budget 2009 to the backburner

By PAULINE NG
KL CORRESPONDENT
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THE riveting parliamentary by-election in Permatang Pauh, Penang on Tuesday has consigned Budget 2009 to the backburner.

Analysts are projecting that the Budget to be tabled in Parliament on Friday to be expansionary and its 11th consecutive budget deficit to ensure the local economy is kept on an even keel, notwithstanding the onslaught of a slowing global economy and spiralling food and fuel prices.

The government expenditure certainly has to be reconsidered. Thanks to the commodity boom over the past few years, resource-rich Malaysia has reaped hefty contributions from national oil company Petronas and oil palm plantation firms.

But despite the extra revenue, the budget deficit, which became a feature after the Asian financial crisis when the government was forced to pump prime to stimulate the economy - ballooning to 5.5 per cent of gross domestic product in 2000 - appears to have become a constant.

Currently it is about 3.2 per cent, held back by very generous oil subsidies and the explosion in public sector expansion which has led to operating expenditure more than doubling to nearly RM129 billion (S$54.5 billion) this year from RM62.2 billion in 2001.



This is mind-boggling considering the entire budget in 1998 amounted to a mere RM64 billion! Each successive budget then appears to have aimed for a new record, 2008's RM177 billion some 11 per cent higher than the year before.

The development expenditure also continues to climb - the federal government maintains spending on construction even in better times, so as to keep its political allies happy.

With the global and local economy looking uncertain, one can expect more of the same in the coming budget - which is fine if it goes into productive areas such as public transportation.

Consumer Affairs Minister Shahrir Samad has acknowledged that the country does not need that many more bridges or roads - at least in West Malaysia - and that public transport initiatives are likely to be a focus of the budget. This would please all since no one is satisfied with the current state of public transport, the prime minister included.

Indeed, with inflation soaring to a 27-year-high of 8.5 per cent, Budget 2009 will be closely scrutinised for signs as to the government's priority areas and how it intends to maximise its tax dollar.

Already, the increasing reliance of Treasury on the oil and gas sector, which currently accounts for half of federal takings, has many worried. Despite being only a tiny oil-producing nation that could be a net importer of oil by as early as 2013, its subsidies remain one of the most generous.

Economists see the government's past reluctance to take the tough steps needed to align its economy to unproductive subsidies and the realities of globalisation, as only deferring more pain to the future.

Unfortunately, last week's hasty drop in fuel prices further underscores the point. Although it had initially said that any price variations owing to a fall in global oil prices would only come into effect from Sept 1, it was quick to announce a price reduction last week.

Whether reducing the pump price of petrol to RM2.55 per litre from RM2.70 is to allow the people the benefit of lower oil prices or an attempt to win over Permatang Pauh voters before Tuesday's poll, it once again underscores the fact that in major decision-making, political expediency is very much in the driver's seat.